(Adds paragraphs on wage growth, analyst quotes, table)
By Kate Duguid
NEW YORK, Oct 4 (Reuters) - The sell-off in U.S. Treasury
bonds that on Wednesday sent yields to multi-year highs
continued overnight, pushing the benchmark 10-year bond yield to
its highest level since May 2011.
The yield on the benchmark 10-year note on
Thursday hit a high of 3.232 percent, as strong U.S. economic
data released the day before raised prospects that the nonfarm
payrolls report due out on Friday morning would come in stronger
than expected.
The yield on the benchmark 10-year note on Wednesday made
its largest daily jump since the U.S. presidential election in
November 2016, as U.S. service sector activity hit a 21-year
high and ADP private payrolls data for September came in
stronger than expected.
Of particular interest in Friday's payroll report will be
average hourly earnings. "That sense of the market’s rising
discomfort about inflation risks leads me to expect the wage
inflation reading within the U.S. nonfarm payrolls on Friday
will be critical to the current sell-off," wrote Brian
Daingerfield, macro strategist at NatWest Markets.
Expectations for Friday's data may have risen too far.
"It is possible we'll see some retracement of the recent
sell-off if the data disappoints or even if it doesn't match the
expectation for the potential for a very strong print,
particularly in average hourly earnings," said Jon Hill, U.S.
rates strategist at BMO Capital Markets.
An index compiled by the Bank of America Merrill Lynch which
broadly measures Treasury market prices posted its worst one-day
price loss since March 2017 on Wednesday.
Trading in the global rates market was three times its
normal volume in the Asian session, which boosted the 30-year
Japanese government bond yield to its highest level
since February 2016, according to research from BMO Capital
Markets. The benchmark German government bond also
rose to its highest since May 2018.
"We saw very large overnight volumes during both the Tokyo
and London trading hours, which was a catch-up in foreign
sovereign markets to the very large sell-off in U.S. Treasuries
yesterday," said Hill.
The reports on Wednesday are likely to keep the Fed on track
to raise rates again in December and suggest the U.S. central
bank's tightening policy is unlikely to end any time soon.
The Fed increased rates last week for the third time this
year. Yields rose further late on Wednesday following a speech
by Fed Chairman Jerome Powell in which he said the U.S. economy
can expand for "quite some time."
October 4 Thursday 10:21AM New York / 1421 GMT
Price
US T BONDS DEC8 138-7/32 -0-9/32
10YR TNotes DEC8 118-4/256 -0-28/25
6
Price Current Net
Yield % Change
(bps)
Three-month bills 2.1825 2.225 0.002
Six-month bills 2.3525 2.4137 0.003
Two-year note 99-194/256 2.8762 0.016
Three-year note 99-104/256 2.9617 0.014
Five-year note 99-62/256 3.0399 0.016
Seven-year note 99-60/256 3.1228 0.015
10-year note 97-116/256 3.1776 0.017
30-year bond 93-172/256 3.3362 0.017
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 16.75 0.50
spread
U.S. 3-year dollar swap 15.50 1.00
spread
U.S. 5-year dollar swap 11.25 0.50
spread
U.S. 10-year dollar swap 4.50 0.25
spread
U.S. 30-year dollar swap -9.00 0.25
spread
(Reporting by Kate Duguid
Editing by Susan Thomas and Nick Zieminski)